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Attention Investors: Own Mutual Funds? Get Ready For Cost Basis Reporting Round 2

Remember those cost basis reporting changes from last year? Well, this year they go one step further. And TD Ameritrade, Inc. (“TD Ameritrade”), a broker-dealer subsidiary of TD Ameritrade Holding Corporation (NYSE: AMTD), wants to spread the word about how these new changes may impact its clients and other investors.

The change stemmed from the Emergency Economic Stabilization Act of 2008, commonly referred to as the “bailout bill.” Mutual fund companies and brokerage firms like TD Ameritrade are required to report clients’ cost basis and holding period to the IRS on their Consolidated Form 1099s when covered securities are sold.

The new reporting requirements are being phased in over a four-year period and last year investors saw the first round of changes as the rule began to apply to equities acquired on or after Jan. 1, 2011. This year, the law will also apply to mutual funds acquired on or after Jan. 1, 2012.

The Details:

Here’s what investors should be aware of as they prepare their 2012 tax returns:

1. The regulation pertains only to IRS-covered securities in taxable accounts, not to IRAs and other non-taxable accounts.

2. The new reporting requirements are being phased in over a four-year period.
  • Equities, including foreign securities and American Depository Receipts (ADRs), acquired on or after Jan. 1, 2011
  • Regulated investment companies (RICs), like mutual funds, and equities acquired in connection with a dividend reinvestment program acquired on or after Jan. 1, 2012.
  • The law will apply to fixed income, options, warrants, and rights, purchased no sooner than Jan. 1, 2014.

3. Like last year, TD Ameritrade clients will see cost basis data on covered securities in the 1099-B section of their Consolidated Form 1099. However, this year the form has been redesigned to make it even easier for clients to understand and use.

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